FB – Do Facebook Ads Really Add Value?

by Tom Taulli | October 29, 2013 1:07 pm

FB – Do Facebook Ads Really Add Value?

Facebook (FB[1]) founder and CEO Mark Zuckerberg has become a huge fan of monetization, which has done wonders for the FB stock price. Heck, Facebook stock is up 88% year-to-date and has more than doubled over the last 12 months.

But the FB strategy may face some headwinds.

An in-depth report from Forrester, for example, says that Facebook ads simply lack value. The report about FB does not pull any punches. Just read this note[2] from Forrester’s vice president and principal analyst, Nate Elliott. It reads:

“While lots of marketers spend lots of money on Facebook today, relatively few find success. In August, Forrester surveyed 395 marketers and eBusiness executives at large companies across the US, Canada and the UK — and these executives told us that Facebook creates less business value than any other digital marketing opportunity.”

Yikes! That’s not what FB stock investors want to hear. In fact, among 13 social networking sites — like Twitter, Google (GOOG[3]), and LinkedIn (LNKD[4]) — the value of Facebook was ranked the lowest.

Elliott provides two key reasons for FB issues. First of all, the ads and “likes” really do not provide much connection and engagement. What’s more, branded FB pages have seen little innovation over the past year and the analytics are minimal.

Something else: Facebook still does not effectively leverage its massive database. A big problem is that the ads are mostly static.

Of course, this doesn’t mean Elliott necessarily believes that Facebook is doomed — or that FB stock investors should sprint for the door. Instead, the issues mentions are fixable. And the good news is that Zuckerberg has proven to be quite adaptable. After all, he has done a great job building compelling mobile apps for FB.

But with pressure from Wall Street, the temptation may be just to jam even more ads into the system. In the short run, this means that Facebook will likely keep up its growth … but that could be detrimental in the long run.

Tech history is full of examples of companies that got too focused on monetization, like Yahoo (YHOO[5]), AOL (AOL[6]) and MySpace. And the result was a backlash from users and advertisers. Anyone who is a user of Facebook can testify that the ads are certainly getting to the point of annoyance.

We’ll get our first hint of the future of FB when Facebook earnings come out tomorrow.

Tom Taulli runs the InvestorPlace blog IPO Playbook[7]. He is also the author of High-Profit IPO Strategies[8], All About Commodities[9] and All About Short Selling[10]. Follow him on Twitter at @ttaulli[11]. As of this writing, he did not hold a position in any of the aforementioned securities.